Arizona State University officials cut an outrageous deal with insiders on the sale of the ASU president's house that appears to have shortchanged taxpayers more than a half-million dollars, according to university records and interviews with key ASU officials and area real estate agents.
The money lost to ASU could have provided full, annual, in-state tuition waivers for 136 students who have seen the price of college increase 70 percent in the past three years.
The sale of the sprawling president's house -- including two prime acres less than a mile south of ASU, at 2400 South College Avenue in Tempe -- stinks from start to finish.
ASU failed to sell the property to the highest bidder, former state representative Steve May.
Instead, ASU sold the property in August 2005 to John Bebbling, a longtime ASU booster and prominent Tempe businessman with connections to Tempe City Hall.
Bebbling (who donates the paint used to keep the "A" on the butte west of Sun Devil Stadium looking sharp) resold the property less than six months later, posting a $625,000 gain. Bebbling did not return my call for an interview, but public records show what happened.
Records I obtained also reveal that ASU skirted its procurement rules when it selected a broker to sell the property because it provided Tempe real estate agent Steve Tseffos, one of four brokers who responded to an ASU request for proposals to sell the property, with inside information that helped him prepare his bid.
The fact that ASU elected to even hire a broker to sell the property that university officials had to know would sell for more than $1 million raises a huge red flag.
The straightforward way to sell this property -- if it ever should have been sold to begin with -- was to hold a well-publicized public auction. That way, there would have been no controversy over the fair market value of the property and all potential buyers would have been given a fair shake.
Instead, ASU hired Tseffos to market the property. ASU would later reject an offer that would have netted it more money for the property that resulted in Tseffos' pocketing an extra $27,500 commission. (Tseffos refused to be interviewed for this column.)
It's this type of sleazy business deal that infuriates lawmakers, taxpayers and alumni -- including me-- who are constantly asked to contribute money to ASU.
The Arizona Department of Real Estate should launch an investigation to determine if Tseffos violated state real estate rules in his handling of the transaction. If so, appropriate action should be taken.
And the Arizona Board of Regents should investigate ASU's real estate department to determine if the sale violated the board's policy since ASU failed to sell the property to the highest bidder and provided Tseffos with exclusive information prior to selecting him as the broker.
Here's what happened.
When he moved to Arizona in 2002 to take the job, ASU President Michael Crow chose not to live in the 45-year-old, university-owned home and instead built a new house for himself and his family in Paradise Valley. Crow receives a $50,000 annual housing stipend in addition to his $440,000 annual salary.
For the past few years, the president's house was being used by the ASU Foundation, a nonprofit fund-raising arm of the university, to house its offices. The foundation, however, was planning to move into a new building and ASU decided it no longer needed the president's home.
In December 2004, ASU obtained an appraisal on the property that indicated a fair market value of the residence of $740,000. But records show ASU officials knew that the property was worth far more because the existing zoning allowed up to eight single-family residences to be built on the two-acre parcel.
Soon after the appraisal was completed, ASU real estate officials met with Tseffos in December 2004 to discuss the president's property. During these discussions, Steve Bott, ASU director of real estate services, allowed Tseffos to review the recently completed appraisal on the president's house.
"[Bott] wanted Tseffos' professional opinion as to whether or not it fairly reflected the value of the property," says ASU spokeswoman Terri Shafer.
At the time of the December 2004 meeting, Tseffos was quite familiar to ASU real estate officials. In the fall and winter of 2004, Tseffos was attempting to sell the historic Farmer-Goodwin Mansion in Tempe to ASU. University officials toured the property but decided against purchasing it.
On December 31, 2004, ASU published a request for proposals for brokers to sell the ASU president's house in the East Valley Tribune. Tseffos was one of four brokers who submitted a bid for the job.
Not surprisingly, ASU awarded Tseffos with a contract to be the broker for the property. The university did not conduct a formal evaluation of the bids. Instead, Bott, and his assistant, Karen Honeycutt, made the decision without following a formal procurement process that includes creating a "selection matrix" where each bid is equally evaluated.
In a January 20, 2005, e-mail to Honeycutt, Bott stated that he preferred a bid submitted by another broker, Carol Royce. But Bott agreed with Honeycutt's analysis to select Tseffos while acknowledging that Tseffos "was the only person who had the benefit of knowing the value of the appraisal."
Honeycutt stated in an e-mail that she wanted Tseffos because "he has a lot of contacts" and "used to work for [former attorney general] Grant Woods" and "I know he's connected."
Tseffos is indeed connected.
The ex-East Valley Tribune reporter once served as former attorney general Grant Woods' press secretary during the 1990s. Angered over this newspaper's 1993 gag in which it photographed Woods, a notorious publicity hound, buying a hot dog from an escaped felon, Tseffos threatened to ignore the Arizona Public Records Law and discard requests from New Times reporters seeking public records.
Tseffos later resigned from the Attorney General's Office under a cloud of accusations of gambling and misappropriating funds stirred up by Woods' political nemesis, former Maricopa County Attorney Rick Romley. Tseffos denied wrongdoing and no charges were ever filed against him.
Out of the limelight, Tseffos turned his attention to real estate, and quickly assembled properties in the historic Maple-Ash neighborhood in Tempe. His plans for high-density development infuriated neighbors, who began purchasing property to keep it out of Tseffos' hands.
ASU's Shafer says it was Tseffos' familiarity with residential property near the campus that led Bott to contact Tseffos and show him the appraisal on one of the most unique development opportunities near downtown Tempe.
I contacted Royce and Mark Engelsman, two of the brokers who also submitted bids to market the president's house. They were not happy to hear that Tseffos had been given the inside scoop and reviewed the appraisal prior to submitting his bid for the job.
"He had the benefit of the appraisal?" Royce replied angrily when I told her what happened. "I did it the old-fashioned way and worked my butt off to try to find the value of that property. That's a huge, huge, huge advantage."
Royce told me that she spent weeks trying to determine the value of the property -- something Tseffos already had a leg up on prior to submitting his proposal to market the property.
"I'm sorry, that's not fair. That's not right," she said.
Engelsman said he had no idea that ASU already had an appraisal in hand. In fact, he says he was strongly urging the university to prepare an appraisal as soon as possible. The fact that Tseffos already had reviewed the appraisal prior to submitting his bid incensed Engelsman.
"That would be a major, major advantage," Engelsman tells me. "The whole thing smells big-time. It really does."
Tseffos' bid included a provision that he would accept a 2 percent commission for his role as representing the seller of the property and an additional 2 percent commission if the successful buyer was not represented by a broker. This provision would later prove to be a crucial clause in the deal that would transpire in the summer of 2005.
After several months of delay, the house was put on the market in early June 2005 with a selling price of $1.5 million. The offering price was well above what could be expected for a single-family residence; it would likely require a buyer to develop at least some of the property with new homes.
By late June 2005, Tseffos had received at least two legitimate offers for the property. Steve May, the former state legislator, submitted a bid of $1.15 million through real estate agent Timothy Norris. John Bebbling, who was not represented by a real estate agent, submitted a bid of $1.1 million.
Tseffos was now in position to receive a 2 percent commission from ASU for selling the property and an additional 2 percent commission if Bebbling was the buyer because Bebbling was not represented by a real estate agent in the deal.
Rather than accepting the high bid submitted by May, ASU rejected both offers and requested a second round of bidding beginning at a minimum of $1.3 million.
May and Bebbling submitted new bids on Monday, July 11, 2005, according to e-mails I obtained from ASU. This time, May submitted a bid for $1.355 million; Bebbling's bid came in slightly higher, at $1.375 million. Both bids were delivered to Tseffos, who then gave them to ASU's Bott.
Interestingly, May's offering price was typewritten on a bid contract while Bebbling's was handwritten. This is odd because during the first round of bidding, both May and Bebbling submitted typewritten offers.
The next day, Tseffos delivered the two offers in sealed envelopes to ASU real estate officials. Shortly after 5 p.m. on July 12, May's real estate agent called and told Tseffos that May would offer $10,000 more than any other bid up to $1.5 million.
"I called him and told him we wanted to put in an escalation clause," Norris, May's real estate agent, tells me. "His response was, 'Why aren't you paying $1.5 million?'"
Tseffos did not relay Norris' offer on behalf of May to ASU officials. Instead, Tseffos stated in a July 12 e-mail to ASU real estate director Bott that Norris was asking to "add in an escalation clause allowing him to pay $10,000 over any $1.5 million offer."
Norris tells me Tseffos misrepresented his offer because no one had submitted a bid over $1.5 million, thereby making the escalation clause meaningless. Tseffos did note in his e-mail to Bott that it appeared that May would pay $1.5 million if ASU wanted to continue the bidding past ASU's self-imposed July 12 deadline.
Records indicate ASU was not interested in extending the deadline. Bott forwarded Tseffos' e-mail to his superior, Ray Jensen, associate vice president of administration, and stated that he thought the "high offer is the deal."
At first glance, the high offer appears to be Bebbling's of $1.375 million. But that's before taking into account the real estate commissions.
And that's where an embarrassing problem for ASU arises.
Since Tseffos was representing ASU and Bebbling did not have a real estate agent, the university would have to take 4 percent -- or $55,000 -- off the top to pay Tseffos, thereby reducing the amount of money going to ASU to $1,320,000.
Unlike Tseffos, Norris had agreed in writing to accept no commission as May's real estate agent. This meant that May's bid of $1,354,600 would have generated $1,327,508 to ASU after paying for Tseffos' 2 percent commission for representing ASU.
So what's the bottom line?
May submitted the highest net offer for the property by $7,508, even without consideration of the last-minute proposal to top any bid by $10,000 up to a maximum of $1.5 million.
But ASU sold the property to Bebbling, who is a major contributor to ASU. (He's given more than $300,000 to the university in recent years.) Bebbling also is a member of Crow's ASU President's Club, a group of about 120 families and individuals that pledge to give a minimum of $5,000 a year to the university to help provide for, among other things, scholarships.
May, meanwhile, was left out in the cold -- despite having the higher bid.
"They would have gotten more money from our offer than they received from the other offer," Norris tells me. "Now that really makes us angry."
ASU spokeswoman Shafer says the university did not consider the cost of commissions when it selected the winning bid.
"All bidders were informed that the award would be based on the highest total bid," Shafer stated in a June 2 e-mail. "None were told that net proceeds would be used as the basis for award."
But Norris tells me ASU never made such a statement to him during the bidding. Furthermore, Norris says it makes no sense for the university to accept an offer that provided fewer net proceeds to the state.
"The state of Arizona should be taking the highest net proceeds no matter what the bids are," Norris says.
ASU sold the property to Bebbling on August 16, 2005, for $1.375 million. By that date, Bebbling already had cut a deal with Cordo Company, a Phoenix luxury home builder, to develop the property. In fact, Bebbling had obtained financing for up to $4.125 million secured by the property, county real estate records show.
Bebbling, who is vice chairman of the city of Tempe's Golf Committee, quickly obtained approvals from the city's planning commission and city council to build eight luxury homes on the lot.
Since the property was already zoned for up to four homes per acre, Tempe was not required to hold public hearings. Neighbors in the adjacent subdivision were never given the opportunity to express their concerns over the doubling of residential density next door. With the approvals in hand, Bebbling had the president's house razed.
In January 2006, Bebbling sold the property to Cordo Company for $2 million. The sale put $625,000 cash into Bebbling's pocket after owning the property for less than six months and securing rubber-stamp approvals from the City of Tempe for a major project.
Rather than moving forward with construction, earlier this month Cordo listed the property for sale, asking $3.2 million.
The former ASU president's home is now the target of intense real estate speculation that likely will lead to high-density development in an old residential neighborhood.
Taxpayers and students, once again, get screwed because ASU failed to sell the property at the highest and best price by simply holding a well-publicized public auction.
Meanwhile, May, who had the highest net offer, is royally shafted, while two insiders -- Bebbling and Tseffos -- each made a killing.
And just to add insult to injury, the property still appears as of June 4, 2006, on the Maricopa County property tax rolls as being owned by the Arizona Board of Regents, which, as a public entity, doesn't pay property taxes.
Nearly a year after ASU sold the residence, no property taxes have been paid in a deal that grossed Bebbling $625,000.
Now that's an extra bonus on a sweetheart deal that should have been captured by ASU for the benefit of students and taxpayers.
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